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Print articleNew Portuguese Insurance Contracts Act
January, 2009 - António Rocha Alves
The main objective of the new Insurance Contracts Act is the consolidation in a single Act of the law governing insurance contracts, which had hitherto been spread out, with some overlapping, among several legislative documents - a situation which made it difficult to interpret the legislation applicable to this type of contract. The objective of the new Insurance Contracts Act is also to resolve certain doubts arising in connection with the application of the existing legislation as well as to regulate certain matters where lack of regulation had been perceived to exist (e.g. the so-called group insurance).
The Insurance Contacts Act resolves doubts regarding the underwriting of insurance contracts by unauthorised entities making clear that such entities lack the power and authority to pursue that business and accordingly that insurance contracts entered by such entities are null and void; however, in order to protect the insured person, the Insurance Contracts Act provides that, save for the bad faith of counterparty, the nullity and voidness of a insurance contract underwritten by an unauthorised “insurance company” shall not discahrge the latter from its obligations thereunder towards the insured person.
Protection of insurance consumers is indeed one of the concerns underlying the new Insurance Contracts Act in respect of which the new legislation has sought to bridge the gap between the regulation of the insurance contract and general consumers' protection legislation.
The legislative effort in incorporating and consolidating the special substantive provisions applying generally to contracts of insurance in a single piece of legislation is therefor expected to contribute to greater security and ease in determining the respective regime and to minimise conflict in respect of some controversial issues insufficiently or obscurely dealt with by the former laws.
Nevertheless, certain practical difficulties regarding the application of the new law are expected.
For instance, the Insurance Contacts Act imposes on parties to non-renewable life insurance contracts a duty to amend contracts entered into under the former legislation so that the Insurance Contracts Act applies to existing contracts as from 1 January 2011 (a different regime has been laid down for non-renewable non-life insurance contracts). Since the fulfilment of this duty is conditional upon agreement between the parties (the interests of any beneficiaries appear to have been disregarded in the process), the question turns on which will be the legal framework governing (non-renewable) life insurance contracts if such an agreement is not reached by 1 January 2011. Will the old law remain in force or will the new Insurance Cntracts Act apply automatically? In the event that the answer is the latter – which may not necessarily be a straightforward conclusion – will only the mandatory provisions of the Insurance Contracts Law apply or will the non mandatory provisions thereof be applicable too?
Moreover, given the financial features of certain “insurance” contracts, the legislator also though that it would be more adequate not to provide for a definition of insurance contract, opting instead to set out the typical duties resulting from the execution of such a contract. It is an understandable solution and allows for jurisprudential and doctrinal development of the concept through the approximation of the “atypical” figures to the duties typically associated with a contract of insurance. It remains to be seen whether it might not have been convenient expressly to provide in the new law for some cases of negative definition such as, for example, credit derivatives - an instrument with an obvious structural and functional resemblance to credit insurance, which is listed in the Portuguese Securities Code as one of the financial instruments that falls under CMVM supervision (thus apparently falling outside the definition of insurance contracts).
Finally, uncertainties are also expected in connection with a new rules accepting the validity of the so-called claims-made provisions (as opposed to occurrence provisions) in civil liability insurance: in other words, the cover period in civil liability insurance may also be defined by taking into account the date of submission of the claim and not only the date of the occurrence giving rise to liability. Under the new Insurance Contract Act, the harmonization of claims-made provisions with the principle that insurance contracts covering claims losses occurring prior to its entry are null and void as well as with the regime applicable to insurance for legal expenses, which should be associated with this type of insurance cover, is unclear and may give rise to doubts as to its interpretation and application. From the perspective of insurance companies, a civil liability insurance on a claim-made basis will require an especially careful risk assessment, given the difficulty in identifying and quantifying occurrences giving rise to a loss taking palce in the past (a question that the insurance companies can only deal with by inserting retroactivity clauses, that is, establishing that the insurance will only cover civil liability claims arising after a certain date in the past).
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